Above The Fray

Field Report: Ireland

I recently returned from a trip to Ireland. While the purpose of my trip was more vacation than business, I did manage to squeeze in a couple of meetings and site visits that have reconfirmed my enthusiasm for our long term investment holdings in C&C Group and Diageo.

Let me start with C&C Group. As I discussed at last year’s annual meeting, C&C is the second largest maker of alcoholic cider in the world and has a sizeable presence in beer with its Tennent’s brand, which is the largest selling beer in Scotland. After getting off the plane in Dublin, I went with the five other men I was travelling with to visit The Five Lamps Brewery. This small craft brewery is majority owned by C&C. It was started in 2012 and currently makes four different beers mostly for the on-trade sector (i.e. pubs). The vibe of The Five Lamps, as you can readily see on its website, is one of local, authentic, Irish heritage beers that provide a real alternative to the large commercially produced international beers available in Ireland. While this investment won’t move the needle of business performance for C&C, it has allowed the company to gain some valuable marketing & consumer insights into the state of the beer market in Ireland. For the record, The Five Lamps Honor Bright Red Ale was my favourite. While I can appreciate any skepticism you may have, this was to be only the first time I was to be found working hard while on my vacation conducting investment research on your behalf! I do want to express a big thank you to Brian Fagan, the Five Lamps Managing Director, for hosting us at the Brewery!

The next day we visited C&C’s cider and beer manufacturing facility in Clonmel. This is a large modern facility churning out bottles, cans and kegs of Bulmer’s and Magner’s cider. It is also preparing for the July launch of its first Irish beer entry, Clonmel 1650 Lager. The name derives from the siege of Clonmel in 1650 by Oliver Cromwell. While also playing on the local, authentic, Irish heritage theme, the beer production capacity at Clonmel is dramatically larger than that at The Five Lamps. While we were not allowed to take any photographs for publication from inside the facility, the cider bottle filling and labelling area was the most interesting for me. The company can produce almost half a million 563 milliliter bottles of Bulmers cider daily!More hard work ensued here as we sampled the many variants of cider made by the company (including apple, pear, berry and light) as well as the new Clonmel 1650 Lager. We were all exhausted by the end of our time at the cidery! My friends on the trip now have a much greater appreciation for the intensity and effort required to be a top rate investment analyst! I want to say a big thank you to Eoin O’Gorman, the General Manager of the Clonmel facility, for his time and hospitality in showing us around the plant!

I am pleased that we visited this facility early in the trip as it gave me a much better perspective on the juggernaut position that C&C holds in cider in the Irish market. The product is sold in virtually every pub, grocery and convenience store and we routinely observed about a third of the patrons in most pubs consuming Bulmer’s cider. The recent warm weather has clearly helped cider consumption and cider seems popular among both males and females in Ireland.

Finally, we visited the Guinness beer factory, which is owned by Diageo, on our last day in Dublin. It is the most popular tourist attraction in the country logging more than a million visitors annually! At the factory, we participated in the Guinness Connoisseur’s Experience. This included a tasting of the four different expressions of Guinness that are sold worldwide as well learning the proper technique for pouring a pint of Guinness. I found it very interesting to taste Guinness Foreign Stout which is the expression sold in Nigeria. It may interest you to learn that Nigeria is the largest market for Guinness beer in the world! All in all, it was another hard day of work for this investment analyst and his five self appointed junior analysts…you know who you are!

Seriously, whether you believe that touring plants, talking with management and sampling the company product offerings is hard work or not, I can tell you that it is an important part of successful investing. As Yogi Berra often remarked, “you can see a lot just by observing”. The insights I gained were important to enhancing my understanding and appreciation for the sustainable competitive advantages that C&C and Diageo possess. Finally, I want you to know that there is absolutely no truth to the rumour that Stacey Muirhead has hired five new investment analysts!

“Above the Fray” is a regular blog written by Jeffrey Stacey, Chairman and CEO of Stacey Muirhead Capital Management Ltd., which discusses items of interest related to investing, finance and business. This is not a solicitation.